September 18
2021
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16th July 2021
Competition & State Aid

Op-Ed: “Opinion of Advocate General Szpunar in Commission v European Food and Others (C‑638/19 P): When is State aid granted? The implications of the Micula case” by Juan Jorge Piernas López

On 1 July 2021, Advocate General (AG) Szpunar issued his Opinion in the well-known Micula case that raises very relevant questions related to the control of State aid under European Union law, particularly in relation to the applicability of the Achmea case law and the time when State aid must be considered to have been granted by a Member State.

To summarise the main facts of the case, in 1998 the Romanian authorities adopted Emergency Government Ordinance No 24/98 (‘EGO 24’), granting certain tax incentives for investments in disadvantaged zones for a period of ten years. In the context of the Romanian accession to the European Union, most of the EGO 24 incentives were terminated in 2005 at the request of the European Commission, hence before the foreseen 10-year period. The plaintiffs then requested the establishment of an arbitral tribunal pursuant to the bilateral investment treaty concluded on 29 May 2002 between the Swedish Government and the Romanian Government on the Promotion and Reciprocal Protection of Investments (‘the BIT’), in order to obtain compensation for the damage resulting from the revocation of the EGO 24 incentives.

In 2013, the arbitral tribunal concluded that, by repealing the EGO 24 incentives, Romania failed to ensure fair and equitable treatment of the investments and awarded the arbitration applicants compensation payable by Romania in the amount of approximately 178 million euros. In 2014, the Commission found that any implementation or execution of the arbitral award would constitute new aid and would have to be notified to the Commission. Notwithstanding, the arbitral award was fully implemented. On 30 March 2015, the Commission adopted the decision at issue, in which it considered that the payment of the compensation awarded by the arbitral tribunal constituted State aid within the meaning of Article 107(1) TFEU and had to be recovered. This decision was challenged before the General Court that annulled it by judgment of 18 June 2019 holding, in essence, that the European Commission was not competent to examine the alleged aid measure under the State aid rules as it predated Romania’s accession to the EU. The European Commission brought an appeal against this judgment (C‑638/19 P), in the context of which the Opinion of AG Szpunar was rendered.

The Advocate General first analysed the argument submitted by the Kingdom of Spain, the Commission, the Federal Republic of Germany, the Republic of Latvia and the Republic of Poland, according to which the arbitration proceedings at issue were incompatible with EU law in the light of the Achmea case law. In this regard, AG Szpunar, while recognising that the Achmea case law applied ratione temporis to the arbitration proceedings at issue, found that such jurisprudence, and in particular the incompatibility with EU Law of arbitration proceedings between EU Member States, may not be extended ratione materiae to situations that involve third countries, which Romania was before accession to the EU, as these situations do not affect the principles of the autonomy of EU law and mutual trust or breach Articles 267 and 344 TFEU.

The Advocate General’s findings are justified in our view. Indeed, the principle of mutual trust between EU Member States, which is the foundation of the mutual recognition principle under EU Law, from the free movement of goods (see for example the Bouchara judgment) to the area of freedom, security and justice (see for example Openbaar Ministerie) may not be automatically extended to the relations between EU Member States and third countries. Consequently, the Advocate General’s conclusion as to the non-applicability of the Achmea case law to events that took place when one of the parties to the arbitration was a third country seems sound. Furthermore, in addition to the Achmea judgment and Opinion 2/13, the Advocate General could have also cited in this regard the CETA Opinion, where the Court held in unambiguous terms that ‘[t]he principle of mutual trust, with respect to, inter alia, compliance with the right to an effective remedy before an independent tribunal, is not applicable in relations between the Union and a non-Member State’.

AG Szpunar then examined the plea of the European Commission, supported by the Kingdom of Spain, concerning ‘the time when State aid must be considered to have been granted by the Member State’ (paragraph 115). In this regard, the General Court had found that the alleged State aid in this case was granted at the time of the revocation of EGO 24 incentives in 2005, hence before Romania’s accession to the EU. AG Szpunar disagreed with the General Court’s finding and held that the contested State aid was granted after Romania’s accession to the EU, in particular at the time when the right of the plaintiffs to receive compensation was recognised ‘and when, accordingly, Romania was required to pay that compensation, or after the adoption of the arbitral award, at the time of its implementation by Romania’ (paragraph 135).

In my view, the General Court’s position on this point seems to be more in line with the case law of the EU Courts. To this extent, as the General Court underlined (paragraph 69), the Court of Justice held in the Magdeburger Mühlenwerke case that State aid must be considered to be granted at the time that the right to receive it is conferred on the beneficiary under the applicable national rules. Indeed, the Court has also held that aid must be considered to be granted when it is ‘promised unconditionally’ (Austria v Commission) or ‘when the commitment to grant it is unconditional’ (Diputación Foral de Bizkaia v Commission). In addition, as the Court underlined in May 2021, the decisive element is not the actual transfer of State resources, the disbursement of the aid, but rather ‘the moment at which the right to receive support through State resources is conferred on the beneficiary under the applicable national legislation’ (Azienda Sanitaria Provinciale di Catania). In this regard, as AG Tanchev summarised in the Arriva Italia and Others case, ‘aid must be considered to be granted at the time the right to receive it is conferred on the beneficiary under the applicable national rules [therefore] aid is not considered to be granted at the time it is paid to the beneficiary’. Lastly, it could also be noted in this context that the Commission has recognised, in relation to the principle of legitimate expectations, that the beneficiaries who entertained justified hopes that a certain State aid measure was lawful, in the sense that it did not fall within the scope of State aid rules, could continue to enjoy the benefits of the measure until the end of its period of application, which also points to the conclusion that the decisive element for considering whether a certain aid measure has been granted is not whether the aid has been paid but whether the beneficiaries had a right to obtain it under the applicable national law (see in this regard, ad. ex. the Commission Decision on the tax amortisation of financial goodwill for foreign shareholding acquisitions).

Finally, the Advocate General analysed the Commission’s argument concerning the alleged misinterpretation of the concept of ‘advantage’ under Article 107(1) TFEU by the General Court and its failure to address all the arguments presented in the contested decision to establish the existence of such an advantage. To this extent, the Advocate General found that the General Court committed an error of law as, according to him, EU law was applicable and the Commission was competent to review the compensation awarded under the State aid rules, a conclusion that could be questioned for the reasons previously explained. The AG also found an additional error of law allegedly committed by the General Court by assessing the legality of only one of the grounds that led the Commission to reject the Asteris and Others case law without analysing other grounds followed by the Commission to exclude the application of such case law.

As is well known, in the Asteris judgment the Court of Justice found that damages  which  the  national  authorities  may  be  ordered  to  pay  to  individuals  in  compensation  for  damage  they  have  caused  to  those  individuals  do  not  constitute  aid  within  the  meaning  of  today’s Articles  107  and  108  TFEU. As summarised by Advocate General Wahl in the Achema and Others case the ‘reason is clear: a sum that is merely intended to indemnify a person for the damage suffered because of a civil or administrative wrong committed by a State authority does not, strictly speaking, procure any economic advantage to that person within the meaning of Article 107(1) TFEU’. The Commission has also confirmed the exclusion of advantage in this case in the Commission notice on the notion of State aid (paragraph 71). It could also be argued that, if general legal principles under national law have been followed for the calculation of the compensation owed to any undertaking in a comparable situation, the selectivity criterion could also be absent (See in this regard, e.g. Pesaresi et al. (eds), EU Competition Law, Volume IV, State aid, Book one, second edition, 2016, page 268).

However, as the Commission rightly pointed out, if the compensation is awarded to reinstate an illegally granted State aid, then the compensation amounts to State aid. In this regard, the General Court rejected this possibility as it considered, contrary to AG Szpunar’s Opinion, that the State aid rules were not applicable when the EGO 24 incentives were granted, and therefore that the measure at stake was not incompatible aid when the arbitral award was rendered, at least in relation to the period before the accession of Romania to the EU.

In this context, as the AG noted, the contested decision also excluded the applicability of the Asteris case law on the basis that: (i) the compensation was granted as a result of arbitration proceedings, outside the general national rules on civil liability of the Member States, and (ii) the EGO 24 incentives had been classified as ‘aid’ by the Romanian Competition Council under the 1995 Agreement. In relation to the first argument, the core of the Commission’s contention seems to be related to the fact that intra-EU BITs are contrary to EU law, an argument that both the General Court and the Advocate General discarded, as discussed above, given essentially that the BIT in question was entered into by a Member State with a third country, as was Romania before accession. Concerning the second argument, there can be doubts as to whether the classification of a measure as unlawful State aid under the 1995 Europe agreement may be equated to that classification under Article 107(1) TFEU for the purposes of excluding the Asteris case law. In this regard, according to the Polydor case law, as summarised by Advocate General Cruz Villalón in his Opinion in the Demirkan case ‘the similarity or even uniformity between the wording of provisions of an agreement with a non-member country and the corresponding provisions of the Union Treaties does not in itself suffice to extend the case-law on the provisions of the Union Treaties to the agreement with the non-member country’. To this extent, there could be doubts as to whether the categorisation of the EGO 24 incentives by the Romanian Competition Council under the 1995 Europe Agreement could be considered as State aid ‘found to be illegal and incompatible with the common market’, in the words of AG Ruiz-Jarabo Colomer in his Opinion in the Atzeni case, for the purposes of excluding the applicability of the Asteris case law.

To conclude, the Court of Justice will have an opportunity to render a decision in a case that raises very interesting questions on the interplay between arbitration proceedings and EU law and on the application of the State aid rules, such as the time when State aid must be considered to have been granted by a Member State and the applicability of the Asteris jurisprudence.

 

Juan Jorge Piernas López is a Senior Lecturer of International Law and International Relations at the University of Murcia. He is also a Member of the Editorial Board of EU Law Live.

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